Fifty-five temporary tax breaks worth tens of billions to U.S. companies and individuals are set to expire at the end of this year. Although many analysts expect most of these tax cuts to be renewed after New Year’s, the process of lapsing and retroactively reinstating tax breaks increases regulatory risk for companies, reports Stephen Ohlemacher for the Associated Press.
“It's a totally ridiculous way to run our tax system,” said National Retail Foundation VP Rachelle Bernstein. “It's impossible to plan when every year this happens, but yet business has gotten used to that.”
Temporary tax cuts give Congress more leverage
Temporary tax cuts are popular with Congress for a couple of reasons. First, an expiration date makes tax cuts more palatable to people who oppose them and easier to push through Congressional negotiations. It also reduces the apparent cost of new legislation since the reduction in income is only calculated until the taxes are set to expire, even if everyone involved intends to renew them. The need for renewal also gives Congressmen and women leverage when asking the affected industries for more campaign money.
There are proposals every few years to eliminate all the complicated tax breaks in favor of lower rates, but the negotiations never seem to get anywhere. Furthermore, now that longtime tax reform advocate Senator Max Baucus is leaving the Senate to become the U.S. Ambassador to China, it looks like we’ll have to wait a little longer for major tax reform.
Tax cuts affected both multi-nationals and consumers
Some of the tax cuts set to expire include $6.2 billion in research and development tax credits benefiting the IT sector, pharma, and manufacturers; rules that allow companies to write off large capital expenditures immediately instead of gradually over time ($34 billion in 2013) and smaller companies like restaurants to write off improvements ($277 million); an exemption that lets multinational firms protect foreign profits from domestic taxation ($9.4 billion).
Of course, not all of the soon-to-expire tax cuts are quite so sweeping. A tax rule, similar to the ones above, that specifically lets motorsport race tracks write off improvements immediately instead of over time, saved the industry $46 million this year, and a $2,500 tax credit on electric vehicles (excluding golf carts) saved consumers about $1 million last year.